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What is Credit-Assignment
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Legal Due Diligence: Beware of Credit Assignments
by Raffaele Caso | May 12, 2022 | Blog
The assignment contracts
Credit assignment is the contract by which the creditor (assignor) transfers its right to credit to a third party (assignee), who will collect it from the debtor (assigned).
This is an increasingly common practice, involving not only banking institutions but also commercial companies that, in turn, also assign receivables to their suppliers.
Audits in DD
Right from the Due Diligence (DD) phase aimed at the acquisition of company shares/shares or companies and business units, it is essential to pay attention to the issue of credit assignment and assess whether the payment flow is in accordance with the agreements made, notifications, acceptances and exchange of information carried out between the parties involved. Verification is necessary, among other reasons, to prevent:
- (a) the obligor who has paid erroneously (e.g., payment in favor of the assignor despite notification or acceptance of the assignment) is forced to pay the same amount again in favor of the assignee;
- (b) the assigning creditor collects sums not due to it and, (i) on the one hand, is forced to return the sum to the assignee or the debtor (if the latter has in the meantime repeated the sum in favor of the assignee) and, (ii) on the other hand, may be subject to actions for damages by the debtor and/or the assignee.
- (c) the transferee creditor is forced to “chase” the debtor who has paid erroneously or an assignor creditor who has collected an undue sum.
Verifications must be conducted based on legal regulations.
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It is noted, for example, that:
There are limits to assignment in that credits that are strictly personal in nature, credits whose transfer is prohibited by law or credits whose assignability is expressly excluded by the parties (for example, a specific procedure is provided for the assignment of credits with public administrations) cannot be transferred. It is therefore a good idea to check the nature of the assigned receivable to avoid incurring null and void or ineffective assignment contracts in the recourse assignment mode, the assignor must guarantee that the debtor will perform the due performance. In the event of default, the assignee may turn to the assignor, who in turn is required to pay the amount owed by the debtor.
Therefore, in the presence of this mode of assignment, to ensure full release of the assignor, it will have to be verified that the assigned debtor has paid its debt to the assignee in full.
The assignment of credit is consensual in nature and, therefore, is perfected by the agreement reached between the assignor and assignee, not by acceptance or notification to the assigned debtor.
Therefore, to exclude actions for breach of contract on the part of the assignee, it is appropriate for the assignor himself to give timely notice of the assignment to the assigned debtor.
There is no peremptory deadline for notifying the assigned debtor of the assignment, which can be done in any form suitable for the purpose, even a notice sent by registered mail is sufficient (and even a verbal notice).
The law also does not identify the party required to notify the assignment of the claim. In this regard, it should be remembered that prior to acceptance or notification there is a presumption of good faith on the part of the assigned debtor that it has fulfilled its obligations to the assignor, with the consequence that payment made in favor of the assignor itself is fully dischargeable. The assignee can overcome this presumption by proving, by any means (including witnesses), that the assigned debtor was in any case aware of the assignment.
Therefore, to prevent the assigned debtor from being forced to repeat (in favor of the assignee) the payment already made (in favor of the assignor) it will be necessary not only to evaluate the exchange of written information but also to screen, possibly through targeted interviews with apicals, the verbal information acquired from the assigned debtor. The difficulty of such a verification is well evident; therefore, it would always be advisable to provide written notification of the assignment of credit.
In the presence of credit assignment contracts, it is therefore a good idea to dedicate within the DD check list (aimed at the acquisition of company shares/shares or companies and business units), a specific section referring to credit assignments involving the client company as assignor, assignee, and transferee.
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Encyclopedia of Machine Learning pp 238–242 Cite as
- Claude Sammut
- Reference work entry
Structural credit assignment ; Temporal credit assignment
When a learning system employs a complex decision process, it must assign credit or blame for the outcomes to each of its decisions. Where it is not possible to directly attribute an individual outcome to each decision, it is necessary to apportion credit and blame between each of the combinations of decisions that contributed to the outcome. We distinguish two cases in the credit assignment problem. Temporal credit assignment refers to the assignment of credit for outcomes to actions. Structural credit assignment refers to the assignment of credit for actions to internal decisions. The first subproblem involves determining when the actions that deserve credit were taken and the second involves assigning credit to the internal structure of actions (Sutton, 1984 ).
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Geoffrey I. Webb
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Sammut, C. (2011). Credit Assignment. In: Sammut, C., Webb, G.I. (eds) Encyclopedia of Machine Learning. Springer, Boston, MA. https://doi.org/10.1007/978-0-387-30164-8_185
DOI : https://doi.org/10.1007/978-0-387-30164-8_185
Publisher Name : Springer, Boston, MA
Print ISBN : 978-0-387-30768-8
Online ISBN : 978-0-387-30164-8
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